20/07/2017 06:23 SAST | Updated 20/07/2017 06:23 SAST

Eskom's Financial Painting May Not Be As Pretty As It Is Trying To Make Out

Billions of rands of debt with higher interest rates are still a major obstacle to getting out of trouble.


Eskom has tried very hard to paint a positive picture about its current financial position, and while there are improvements, the hundreds of billions in debt hanging over their heads is more than a small smudge.

At an operational level, the parastatal has managed to cut primary energy costs by 2.3 percent and energy generation costs decreased by 8.5 percent to R60 billion.

While the energy producer has increased its revenue to R177 billion, their profits nosedived by 83 percent, down almost R900 million from last year. This, along with a dark cloud of about R350 billion of debt, have analysts worried about its future.

The embattled state-owned enterprise released its financials on Wednesday, after cancelling a planned release last week apparently over investors being concerned of allegations of corruption at the power utility.

'Burning cash'
Energy expert Chris Yelland said Eskom's massive interest bill is based on the nature of its business as well as its new build programme.

"While operations are generating cash, Eskom's level of debt is burning cash. Their financials show that their ability to generate cash has disintegrated in light of their increasing debt," Yelland said.

"Eskom would have to borrow more than R50 billion per year and this will come at higher interest rates. They have previously indicated that this debt may rise to about R500 billion in three years. Their debt will go up and the interest on that debt will go up too."

At end of the previous fiscal year, of Eskom's R322.7 billion of debt, R126.5 billion was ZAR market bonds, R83 billion was DFI (development finance institution) funding, R59 billion was foreign exchange market debt, R38 billion was export credit and R4.8 billion was commercial paper.

Read: Eskom Has Denied Media Reports That It Is Broke

In a statement, Group Chief Executive Johnny Dladla, while reflecting on the operational and financial performance of the company, said Eskom's turnaround plan was premised on three key focal areas, namely, improving generation performance; ensuring financial sustainability; and completing the new build programme.

Load shedding
"Eskom has not implemented load shedding for the past 23 months, and the plan is to continue implementing appropriate levels of planned maintenance to ensure long-term plant reliability. In terms of Eskom's existing Generation Sustainability Strategy, its aim is to achieve 80% plant availability, 10% planned maintenance and 10% unplanned maintenance by 2020," the parastatal said.

Eskom Chief Financial Officer Anoj Singh also said the company has managed to secure 77% of its funding requirements, including cash on hand, for the current 2017/18 financial year.

Yelland advised that Eskom should be focusing on ways to increase its sales volume.

"They also need to pay a lot of attention to governance, mismanagement and corruption," Yelland said.